May’s hot topic was the carbon border adjustment, a style of carbon tax under consideration for a bipartisan energy and climate bill. We’ll focus this month’s update squarely upon it.

Below you’ll find (1) the opening paragraphs of a May 4 E&E News report that thrust the border tax into the spotlight, (2) my op-ed at National Review from May 11 that contextualizes the plan, (3) IER’s policy brief that digs into the minutiae, (4) an excerpt from Tom Pyle’s AEA blog that puts what’s at stake in stark terms, and (5) the link to a podcast I recorded with IER’s Alex Stevens on the matter.

Here’s how E&E set the table in early May:

Sen. Joe Manchin’s bipartisan energy gang is trying to breathe life into a carbon border adjustment, but it is still struggling with the same political problems that have dogged past efforts to slap tariffs on carbon-intensive goods.

Republicans emerged from a meeting of the group Monday pitching a vision for a carbon border adjustment that would penalize imports of high-emissions products from countries like India and China, without a domestic price on carbon in the United States.

Manchin, the West Virginia Democrat who chairs the Senate Energy and Natural Resources Committee, has been trying to come up with a bipartisan energy and climate bill after he led the demise of the partisan ‘Build Back Better Act.’

Here’s a snippet from my take in National Review the following week:

At root, a carbon border adjustment fee, absent a genuine domestic carbon policy, is a tariff. Delaware senator Chris Coons, who as recently as 2019 lamented the harmful effects of tariffs on U.S. businesses, now approves of the very same framework, describing the bipartisan energy gang’s plan as creating “incentives and rewards for our own industrial manufacturers and barriers to entry” against products from places such as India.

The benefits of a carbon tariff would redound to a narrow subset of domestic interests while the rest of us are forced to pay higher prices in an already inflationary environment. To weaken the case further, suggestions that such a policy would help our position relative to China ignore the fact that a carbon tariff will not only strike at Beijing, but will also harm the economies of pivotal Indo-Pacific counterweights.

Here’s the opening ‘graph of the newly-released IER policy brief on the issue:

A carbon border adjustment is a tax on imports based on their assumed greenhouse gas emissions. Because carbon taxes harm domestic business competitiveness, carbon border adjustments are used to increase the cost of imports in order to prevent those imports from undercutting domestic businesses. The United States has no carbon tax and, therefore, raising a carbon border adjustment would be akin to erecting new tariffs on plainly protectionist grounds. Carbon border adjustments increase costs for households and businesses; in the absence of a domestic carbon tax, a border adjustment is especially distortionary and is rightly called a tariff.

And here’s Tom Pyle’s take over at AEA:

Is now the right time to increase energy prices with a new tax on energy?

Despite the fact that inflation is the highest it’s been in forty years and the U.S. economy contracted in the first quarter of 2022, Republican Senators Kevin Cramer, Lindsey Graham, and Bill Cassidy apparently think so. They’re plotting with Democrat Senators Joe Manchin, Chris Coons, and Sheldon Whitehouse (who’s never met an energy tax he didn’t like) to push for a new “carbon border adjustment”.

That’s bad news for household budgets. This so-called “adjustment” is a tax on energy – like oil, gas, and coal – and imports, like fertilizer, steel, aluminum, and concrete. It will drive up the cost of pretty much everything made or transported, including household goods, cars, and food.

Lastly, if you’re interested in my border adjustment discussion with Alex Stevens, listen here:

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